CG: Source says lenders mulling 4-step recast package for Dewan Housing

7 July 2019: Lenders to Dewan Housing Finance Corp are contemplating a comprehensive restructuring package for the company, including conversion of debt into equity, buyout of retail loans, revision in the repayment structure and infusion of fresh funds, according to a source in the know of developments.

Nearly all the 31 banks that extended loans to the beleaguered housing financier have signed the inter-creditor agreement, under which the restructuring package will be worked out, with Jun 29 as the reference date.

Last weekend, the company defaulted on principle and interest payment to some banks.

Dewan Housing had outstanding debt of around 1 trln rupees as at the end of December. Of the total, 38% are bank loans, with State Bank of India having the highest exposure.

“The unsustainable portion is expected to be converted into equity. For the sustainable portion, banks will rework the repayment schedule. Fresh lending will be through direct infusion and through purchase of retail loan portfolio. Some lenders will also buy loan portfolios and adjust it against their dues,” said the source, a senior banker with Mumbai-based public sector bank.

He added that considering that Dewan Housing had already sold retail loan portfolios, there may not be much left on the table. Lenders are not keen on taking over developer loans because of the asset quality concerns.

The details of the fund infusion and the likely haircut that banks will have to take is yet to be finalised, the source said.

On Saturday, CNBC-TV18 reported that initial estimates done by banks in consultation with Alvarez and Marsel show that banks will have to take a 35-40% ‘haircut’ on their exposure.

The restructuring package is expected to be ready before the end of 30-day period as per the Jun 7 circular of the Reserve Bank of India on resolution of stressed loans.

According to the central bank’s circular, as soon as a default takes place, lenders have to review the account and start the resolution process within 30 days. Lenders have complete discretion to choose whether to implement a resolution plan for the account, or refer it under the Insolvency and Bankruptcy Code.

 The resolution plan has to be implemented within 270 days of the default.

Since September, which is when the debt default of Infrastructure Leasing & Financial Services Group hit Dewan Housing too, it has repaid debt obligations of 400 bln rupees.

However, in the last fortnight it has defaulted of repayment on commercial papers, interest on non-convertible debentures, and bank loans.

The lender had undertaken several steps to tide over the liquidity squeeze. It sold its loan portfolios to banks and also, as well as initiate stake sale in its mutual fund joint venture and lending arms.

The latest default on repayments within the same month clouds the mood around Dewan Housing Finance’s attempts to recover from its liquidity problems that is fast turning into a solvency issue.

Last month, several rating agencies had downgraded Dewan Housing Finance Corp’s papers to the default rating of ‘D’. This came after the company defaulted on interest payments of 10-bln-rupees on its non-convertible debentures that was due on Jun 4. However, the company managed to pay the interest within the seven-day grace period.

In February, Dewan Housing Chairman and Managing Director Kapil Wadhawan had last month said that promoters are working to induct a strategic investor within the next 90 days in a bid to assuage concerns of investors.

However, the company had not been able to do so.

The housing financier was looking to bring financial as well as strategic investors, including private equity players. The promoter group is keen to retain a sizeable stake in the company after the fund infusion, the source said.

The Wadhawan family, promoters of Dewan Housing, holds over 39% stake, mainly through Wadhawan Global Capital Ltd. 

As reported by Cogenics